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Incentive plans are part of an employee's compensation or pay. The incentive plan gives
an employee the opportunity to increase his annual pay based upon either company
performance or individual performance. Incentive plans are a way for companies to keep
employees motivated to perform to the best of their abilities, thus increasing company
An incentive is defined as something, such as a punishment or reward, that induces
action. Incentives are encountered every daywe hope to get a pay raise because of job
performance, or we stay within a posted speed limit because we are afraid of getting a
speeding ticket.
Incentives are now commonplace in engineering and construction projects. Efforts to
date, however, have focused primarily on incentives at the company level, e.g., an owner
provides a contractor with a monetary incentive for meeting a certain completion date.
Little documentation exists regarding the effects of applying incentives that are provided
directly to individuals or groups of individuals (project team, specific craft, discipline
group) based on results achieved on a project.
This toolkit focuses specifically on developing Employee Incentives Plans (EIPs) for
individuals or groups of individuals who are working on a specific engineering and/or
construction project. It does not address annual bonus plans or other similar performance
incentives; rather, its application is limited to developing an employee incentive plan for
a one-time project of defined scope and duration.
Employee incentives tied to safety performance have been used for many years, with
good success. Few companies, however, have tried linking employee incentives to other


performance factors. The more successful programs have established a direct relationship
between the project objectives and the performance criteria used to determine the
incentive payout. This direct relationship helps in four ways. First, it forces management
to clearly establish project objectives and the performance criteria required to achieve
them. Second, it helps the employees to better understand the project objectives and the
employees direct impact on project success. Third, it helps the employees to maintain
their focus on the project objectives because the EIP provides continuous feedback on
their level of performance, which in turn has a direct impact on project success. Fourth,
independently of the type of contract, it is important to define who will be in charge of
the EIP, and who will pay for it. The ideal situation is that the EIP driving company
(owner or contractor) will take the lead and fund the program. This will ensure that the
objectives of the EIP are aligned with the objectives of the EIP driving company.


Features of effective employee programm:

The first point is that any incentive program needs to be achievable. This may seem
obvious, but too often Ive seen otherwise well managed, well-structured incentive
programs fail because they were or at least were perceived to be unattainable.
Incentive programs should also be equitable. Staff know that if they do well, theyll be
rewarded, but also that bonuses and incentives are not a given; they need to be
earned. This should be the case whether youre a rep or a manager.
A key feature of any successful incentive program is clarity on what an employee needs
to do to qualify, and which factors are in or out of an employees control. For example,
while an employee can and should be able to control his or her own sales
performance and execute their activity plans, other factors, such as total company
performance, can be a partial determinant of the final incentive outcome.
Sometimes these external factors can account for 15% or more of the outcome, and so, no
matter what your position in the organisation, you want to know what is directly within
your control as well as indirect factors (such as subjective individual performance
assessments and total company performance) that the whole organisation is striving to


In doing so, an equitable incentive program will seek to find the right balance between
objective (results) and subjective (appraisal) factors. Often subjective factors can have a
significant effect on the final reward, so its vital that employees understand how these
subjective factors are measured, who measures them, and what their direct relationship is
to that person or persons.
That said, no matter the weighting of factors or balance of control, an incentive programs
goal must be achievable. For example, an incentive program that requires you to achieve
130% of your target in order to qualify would be considered by most people unattainable,
and would be more likely to cause a mass walkout than motivate your staff to try harder.
The objective and subjective factors of an equitable incentive program must be within
reach of the individual. Large teams in particular will often have a spread of achievers,
from low to high. Those that go above the mark need to know theyll be appropriately
rewarded for their efforts, and those that struggle to make their mark need to know there
are systems (such as catch-up or claw back programs) in place to help them make up
the shortfall over longer periods.
In most organisations theres an entry point below which no one receives a bonus, for
example, less than 8590% of target. There is then a sliding upwards scale up to 100%,
and beyond 100% theres usually an exponential multiplier, usually capped at 130%. In
this way you need to show a certain flair for the role to achieve reward, but the company
is protected so that you cant go too far beyond whats realistically attainable (and
affordable) to the organisation.
While were on the subject of clarity and equitability, any qualification or entry points to
an incentive scheme must be clear. Not only does everyone need to know the weighted
qualification points of the scheme, but they also need to be clear on eligibility to
participate in the program. For example, most organisations have a probation period (up


to six months in some cases) before which entry to an incentive scheme is closed or
limited. Importantly this needs to be clear for new starters as well as people changing
roles inside the same organisation (eg: a Sales Rep moving into a Manager role),
especially where different departments are governed by different schemes.
For new starters there is always some trepidation regarding what type of territory they
have inherited, often referred to as the carry-over effect, where a new employee joins a
company in a territory or market thats either over-performing or under-performing. An
employee may have inherited a role where momentum is already in place and
performance all but assured whereas others may face market share saturation with limited
opportunities for growth. This is often considered a factor outside the employees control,
but at the same time can work to his advantage or disadvantage and may result in
discretionary incentive adjustments.
Remember that people are not looking for the same target, but a fair target that reflects
the opportunity within their sphere of influence. An incentive goal should be based on
logic and be auditable and explainable by both the rep and management.
Communication is key to managing a fair and equitable incentive program, as
is transparency. People need to know that if theyve had a bad quarter or cycle, that
catch-up programs are available.
In summary, an incentive scheme that doesnt take any of these factors into account and
does not motivate personnel to achieve their best is likely to result in unhappy staff, and a
company with high staff turnover. Conversely, a fair, equitable, transparent and
achievable incentive scheme is critical to motivating and retaining employees and driving
business growth.



Keep it simple
Avoid complicated schemes and long lists of goals. Select one goal, (or very few
very important goals) and put your focus there. Over time, you can update the
goals, or exchange some goals for other goals.

Use reward points

Instead of rewarding with specific gifts, award points that your employees can
redeem for their choice of awards. Use an excellent incentive company to manage
the gift collection and shipping for you.
Design a program that everyone can win
Avoid giving awards to only the top performer or a few top performersor
similar schemes. Design a program that everyone can win if everyone performs.
This doesn't mean that you should set easier goals; it means that you should invite
everyone to perform at an excellent level, and then reward that performance.
Focus on the positive
Make the program fun, by emphasizing the positive, cheering people on and
celebrating success. Use the success of individuals in the program as an excuse to


have meetings and events at which you can review the goals, applaud individual
successes, and help others learn how they can rise in excellence.

Employee Incentive Programs reward exceptional employees for
reaching work goals, achieving milestones or simply doing a good job. These types of
programs are designed to offer incentive and rewards to valued employees. Employee
Incentive Programs have proven very successful in arousing motivation in employees and
increasing the overall performance of the company. An incentive program is a great way
to show employees that you value their input while at the same time increasing your
businesses potential.
Here are the top ten reasons your company needs an Employee Incentive Program.
1 Mutual Rewards
An Employee Incentive Program is mutually beneficial. The employee feels valued and
motivated and is therefore more productive and committed. The company reaps the
benefits of a motivated, focused and loyal employee. The results of Incentive Programs
have a consistent theme. The companys bottom line increases as the employees
productivity peaks.
2 Increased motivation
Many people find it hard to motivate themselves at work. This is a common occurrence
and one that has been significantly effected by Incentive Programs. These programs
motivate employees by offering rewards for reaching targets and company goals. These
come in many forms ranging from cash to cars to holidays to gifts. The rewards are a


great motivator but what is more inspiring for the employee is that the company cares
enough to offer these incentives.
3 Increased company morale
Rewards, incentives and recognition make for a happy, harmonious working
environment. Goal setting and targeting objectives helps with focus and purpose.
Employee Incentive programs offer all of these things and are highly conducive to
company morale. Increases in company morale help to reduce absenteeism and overall
company costs.

4 Increase company loyalty

Company loyalty is not something you can buy. However incentives for good work and
rewards for hard work go along way to securing commitment from employees. Employee
incentive programs show employees the company values their input and their work. If an
employee feels valued and appreciated they are more likely to form an allegiance to the
5 Increased productivity
Incentive programs promote productivity in a number of ways. Employees are offered
incentives for reaching targets or for good work in general. These incentives vary but the
main aim is to encourage employees to work towards company goals. With the promise
of incentives and clearly defined targets employees are more productive and motivated.

6 Increase objective achievement

Incentive Programs are a great way to reach targets and company objectives. Using an
Incentive Program employers can set realistic goals and reward employees when the
reach them. This is a great way to boost productivity and morale while at the same time


achieving company goals.

7 Reduced company costs

Overall company costs can be reduced as a result of an Incentive Program. This cost can
be measured in terms of reduced absenteeism, reduced recruitment costs and turnover of
staff. You will also see a significant return on your investment via increased productivity
and motivation within the office. To further explore the cost of implementing
an employee incentive program please click on the link to receive quotes.

8 Reduced Absenteeism
The bottom line with incentive programs comes down to the very simple fact that people
like being rewarded for hard work and a job well done. The rewards are only part of the
equation. Incentive schemes show employees the company cares and appreciates the
work they are outputting. If an employee feels appreciated and has clear targets that result
in rewards then they are more likely to want to come to work.
9 Team Work
Incentive Programs promote teamwork and foster an environment that is conducive to
success. Employees working towards rewards or targets will pull together to achieve
desired results. Teamwork increases efficiency and creates harmony within the

10 Decreased Turnover
Incentive Programs foster happy, productive working environments. Employees enjoying
this kind of environment will be more likely to stay long term. This means incentive
programs reduce the amount of turnovers within the company. The advantage of
consistent staffing is that you are not spending money on recruiting or training new staff.
You are also able to retain loyal committed employees with a vested company interest.


Benefit of employee incentive program(EIP):

Incentive plans were created for the express purpose of urging employees to motivate
themselves to higher achievement levels. Incentive plans that reward employees for
reaching pre-established goals provide encouragement and give staffers something to aim
for. The advantage to the employer is increased levels of productivity.
Increased Earnings
Most incentive plans are tied to earnings. The more revenue an employee generates for a
business, the more he is rewarded through his incentive plan. Businesses providing
incentive plans have the advantage of seeing their bottom line rise in direct proportion to
the sales their employees generate. In this sense, incentive plans can be self-supporting,
in that the business essentially pays for performance.
Employees who have the ability to positively impact their earning potential through
incentive plans are more likely to be loyal to the company they represent. This is
especially true if incentive plans have residual value. For example, if an insurance
company employee gets a bonus for signing up a new client, and then gets a residual
bonus for every subsequent year that client renews, earnings can increase over the life of
his employment. It becomes an advantage to the employee and employer for there to be
longevity in the professional relationship.



Reduced Turnover
Employees often look for new employment opportunities when they feel they are undercompensated or unappreciated. Incentive plans are a way of rewarding top-performing
employees and showing them you appreciate their contributions to the business. The
advantage to the employer is reduced turnover, which also results in time and money
savings related to recruiting new hires. Businesses may also attract more well-qualified
candidates by offering incentive plans.

Collaborative Efforts
When employees work together on team incentive plans, they establish a sense of
camaraderie, pulling together for the common good. This can strengthen bonds between
colleagues, managers and business owners. The advantage of a unified workforce is a
more efficient, pleasant work environment for all. It can also enhance regular work
relationships between departments and co-workers, resulting in increased productivity.



There was a time when employee incentive plans were associated only with sales-related
businesses. In current times, some people consider incentives to be important to boost
productivity for all types of business. However, the efficacy of these plans is uncertain,
sometimes due to the extra costs to the company and sometimes because of unanticipated
problems that arise. Designing suitable incentive plans and maintaining them consumes
both time and effort. Compensation expert Bruce R.Ellig suggests a diverse policy that
allows managers to use the advantages of a variety of plans while minimizing their

Individual Incentive Plans

This type of incentive is based on yearly payout that is determined by evaluating
individual employees. An individual incentive plan can cause the employee to take
aggressive action that might get out of control. Moreover, standards set are sometimes
unreasonable. According to Ellig, Individual incentive plans are known to create friction
between management and workers, as the employees seek to maximize profits, whereas
the management is concerned about the deteriorating quality. Individual plans also tend
to increase turnover of new employees, who suffer from lack of cooperation by



experienced workers. Besides, this incentive system concentrates on one small part of
what makes the companies thrive.
Profit Sharing Plan
In spite of its popularity, a profit-sharing plan is not foolproof. The focus is on a single
objective, John H. Jackson writes in his book, Human Resource Management.
Besides, it does not take into account the employees performance throughout the year. It
de-motivates workers by raising expectations that might not be fulfilled. Moreover, the
long delays between the time when effort is made and the time for bonus is also very
frustrating. It is specifically not suitable for small companies with an irregular earning

Annual Performance Bonus

The greatest evil that beset this bonus is its infrequency. It is given yearly, which tends to
lessen its usefulness because there are no rewards to motivate the workers through the
year. In his book, Work Measurement and Methods Improvement, Lawrence S. Aft
says, Its not easy to link it with performance. The workers focus on what makes them
look good in front of their supervisor, instead of targeting profits. For instance, in a
school, teachers might focus on maintaining discipline that puts them in limelight, rather
than teaching their subject to perfection.
Commission Plans
Dispensing commissions is uncomplicated, attracts high performers, maximize sales and
minimize supervision; however, they do not foster loyalty. Employees do not work for
perfection; instead, they try to gain monetary benefits by pursuing mature territories that
require minimal exertion and grant greater profits.



Salary at Risk Plan
According to this scheme, a minimum base salary is ensured. To avail the full salary, an
employee is required to achieve the set targets. According to Ellig, this scheme gets very
discouraging, especially if the set goals seem out of reach. It is a kind of negative reenforcement, a penalty and should be avoided.
Group Plans
Group plans promote unity and foster learning through co-operation, but they suffer due
to free-riders. For example, top performers will be dissatisfied if one person in the group
doesn't share the load while the rewards are distributed equally.
Employees: Types of Programs
Incentive programs are used to drive behaviors conducive to practically any business
objective. Recognition programs are used to recognize individuals whose
accomplishments were particularly noteworthy. The following provides an overview and
key planning considerations for the most common types of non-sales employee incentive
and recognition programs.

Internal Branding Programs

Even the smallest company stands for something: It has a market proposition and an
implied promise, whether conveyed through marketing, over the phone, or face-to-face.
That brand can stand for high quality, quick response, friendliness, dedication to customer
satisfaction, or any combination of the above and more. Organizations that want to make
sure their employees put a face on their brands use internal marketing to educate
employees on the brand; they use communication and training to inspire and make



employees capable of delivering the brand promise; and they use rewards and recognition
to reinforce those behaviors and promote them throughout the organization.
Today, an important application for non-sales incentive or recognition programs is to
connect the dots between promises made in marketing and sales and the actual experience
encountered by customers either via customer service or their use of the product or
service. As more organizations discover the economics of customer retention, the focus
on internal branding becomes greater.
Lead Referral Programs
Many organizations have large numbers of employees, at least some of whom might be in
a position to promote your companys products or services to friends, neighbors, and
through community events. Ironically, many companies hire special outside product
promotion companies when many of their own employees might eagerly want to help out
if given good reasons to do so.
Idea (Suggestion) Systems
Idea or suggestion systems empower and motivate people who are closest to the job to
offer improvement ideas. Ideas to solve a business problem, improve efficiency or
quality, or reduce costs are submitted to Web sites, telephone hotlines, within employee
meetings, and more. Following submittal, ideas are evaluated, and then accepted or
rejected. If accepted, and an action plan to implement the idea is requested, the
submitter(s) are rewarded and recognized based on the value of the idea. Typical uses for
idea or suggestion systems are to:

Improve the quality of working conditions

Eliminate inefficiencies, waste, or duplication

Save money, resources, or time



Streamline administrative procedure methods

Increase safety, promote health, or improve morale.

Special planning considerations. Management must convince employees that the

suggestion system is an invitation to get involved in charting the course of the company.
If management commits to the idea through staffing, equipment, and funding, a
suggestion system can turn into a profit center. Ask yourself:
1. How can we create a unified strategy i.e., a centralized system communicated
from the top down?
2. Are we prepared to implement a process of idea solicitation, judgment,
implementation, and rewards to the extent that our employees believe were
serious and will thus learn how to contribute?
3. Are we prepared to fund rewards for usable ideas and to appropriate funds needed
to implement them, including training investments necessary to train
administrators and end users?
4. Does your organization provide feedback on all suggestions, regardless of whether
or not they are implemented?
Customer Retention Programs
Customer retention is influenced significantly by employee attitudes. Many companies
provide incentives and recognition to frontline sales employees, and rightfully so there
is clear evidence that incentive and recognition plans engage frontline sales personnel to
provide better customer service and enhance performance not only in the immediate time
frame, but also in the future.
Special planning considerations. Incentive programs directed at customer-centric
behaviors have a role in motivating employees to establish personal relationships with



customers that enhances customer satisfaction and thus future sales. Trust plays a major
role in marketing environments where consumers and service personnel interact.
Fostering trust-building behaviors, training on customer service skills, customer
relationship building, etc., are particularly important to service businesses.
1. What specific employees are front facing in our organization or in the
organizations of our channel partners (non-sales employees)?
2. What specific behaviors are necessary to change or improve upon?
3. What training should be applied to ensure these employees are able to demonstrate
the desired behaviors?
Safety Programs
Safety programs help reinforce a strong safety culture. Whether the goal is to improve a
poor safety record or to maintain an already stellar one, incentive and recognition
programs are an excellent vehicle to meet both goals. To achieve the best results, safety
programs require the inclusion of safety committees, accident investigation teams, and
training sessions for both program participants and administrators. Significant reductions
in lost time injuries, workers compensation claims, and accidents in general have
resulted. The most sustainable results occur when employees feel engaged to participate
in the process of safety improvement, such as reporting broken equipment or workplace
conditions that create risk.
Just as important is the fact that successful safety incentive programs raise awareness of
safety issues, reduce injuries without causing workers to hide them, and instill proactive
behaviors that create a safe working culture. The most successful safety programs
incorporate idea systems in their processes. For example: Making safety suggestions,
spotting close calls, achieving behavioral safety goals, attending safety meetings,
assisting inspections, etc.



Special planning considerations. If the goal is a measurable reduction in accidents,
workers compensation claims, etc., then you will be looking to maximize contributions
to safety-related ideas and practices, participation in safety meetings, and so forth. That
means there need to be systems in place to implement such programs, reward participants
for their actions, as well as to perform administrative functions such as investigating
accidents, providing guidance on procedural changes, etc.
Are we prepared to fund and support an administrative infrastructure to affect measurable
changes in our operations?
What are the risks we face if we do not implement a safety program?
Employee Recognition Programs
Surveys of employees and middlemen commonly reveal that people feel neglected an
attitude that is prevalent in the middle 60 percent of any work force. Time after time,
respondents complain that they get little positive reinforcement for doing an exceptional
job, claiming that they work hard solely as a matter of personal pride.
It should come as no surprise that companies with a reputation for enhanced customer
service always put great emphasis on recognizing exceptional performance by employees
at every level. A truly customer-driven company also goes out of its way to publicize this
recognition so that exceptional performance will be remembered not only within the
organization, but by the community at large. Top executives participate in banquets or
other programs honoring individuals who, though not always among the highest
achievers, have consistently shown improvement. Especially when awards are presented
in a public forum, every effort is made to ensure that the event underlines the
organization's ability to motivate employees in the cause of customer satisfaction.
First and foremost, goal alignment within the organization is critical. That means, even
though your organization has the desire to recognize top performers whether to increase
retention, customer-centric behaviors, positive working conditions, productivity, length of



service, or for other purposes those who recognize and applaud the stars need to know
how to do so. Its not a mechanical process though. Sincerity is of paramount importance.
After all, insincere praise can do more harm than good.
The National Association of Employee Recognition (NAER) has established a set of best
practice standards for the design and implementation of recognition programs. These
standards include the following:
1. Management responsibility. The organizations executives and management take
responsibility for a well-defined recognition program and are committed to the
programs objectives.
2. Recognition strategy. The organization has established and documented processes
that promote employee recognition at all organizational levels, including day-to-day,
informal, and formal recognition.
3. Recognition program communication plan. The organization has established and
utilizes an effective system to communicate all aspects of the recognition program.
4. Recognition program goal alignment. The organization demonstrates alignment
between the recognition program and organizational goals and values.
5. Behavioral based programs. The organization has well defined business goals and
organizational values, including employee behaviors that reflect those values.
6. Recognition program measurement. The organization demonstrates how recognition
programs are measured for effectiveness, using established measurement indicators
or tools. These include statistics to validate employee participation and satisfaction
levels in the recognition program.



7. Recognition training. The organization describes its methods for training managers
and employees at all levels on the principles of effective recognition, and it
describes the methods of documenting the objectives of the training and curriculum.
8. Recognition events and celebrations. The organization has processes in place for
organizing celebrations and events, provides necessary resources for events,
documents the event, and uses creativity and uniqueness in them.
9. Recognition process/program change and flexibility. The organizations recognition
programs can be easily adjusted to meet new goals as the organization changes or as
different needs arise.


1. Have a Vision for your business.
Have an image in your mind of the expected future of your business. Having a
vision will not only inspire you, but will help you inspire others to reach for the
same goal.
2. Define your Company Objectives
Identify business objectives, both strategic and tactical. Each should be:
- Specific (ie: reduce accidents, improve attendance, reach sales targets)
- Measurable
- Action oriented
- Realistic and obtainable



- Time bound (no procrastination; set target dates)
- Easy to understand and simple.
3. Define your program
Define the rules - how are points earned
Define who is eligible to participate
Establish a budget - which may break down like this example:
- 75% of budget for Program Awards
- 15% of budget for Program communications
- 10% of budget for Program administration
Set goals, varied by each job position, making sure each is attainable
Define levels of achievement for each goal or objective
Set point values for each goal (and for each level of achievement)
Set a fixed duration for your program (then possibly re-start with a modified
Note: employees will only be motivated when they feel they can actually attain
your goals.
4. Incentive Program Administration ( points tracking / reporting )
Determine your program tracking / administration system, including:
- Should your program be online (internet points tracking) or offline (paper-based
- Who will track, report, post points, and communicate employee performance ?
- Should you provide regular point statements or status emails to employees?
- Who sets the initial budget, and tracks the incentive programs status to budget?
Note: For best program results, performance information must be frequently
updated, and must be easily accessible to all program participants (either online or
with other status updates).



5. Plan your Program's Communication / Promotion
Give your Employee Incentive Program a name and define its theme. Develop
an exciting promotional campaign for the launch of your new incentive program
just as you would for an actual product launch. Youll want to capture the
imagination of your employees. Explain your objectives, and rewards for their
success. Once employees are shown how they can make a difference, they'll do it!
Communicate often. The most successful companies make a big deal about their
winners and awards (points, etc). Make them feel special and others will notice.
Let participants or teams know their current standings in the program. If
appropriate, even chart their progress on employee bulletin boards.

6. Determine the type and value of merchandise awards to offer

Research and experience clearly indicate that non-cash, merchandise awards, are
much more successful than money as incentive awards. Merchandise awards
provide a continuous, long-lasting reminder of ones success, every time the award
is seen or used. Read this article: Cash or Merchandise awards. Also, cash
awards are taxable, while tangible merchandise used in formal service award
programs and safety programs, usually are not taxable. Please contact your tax
advisor for guidance with your program. See a sample online points-based
award catalog.
7. Earning levels needed to motivate average participants - Guidelines



There are many variable factors to consider, such as: employee salary/bonus
compensation program, degree of difficulty attaining your incentive programs
objectives, etc
As a general guideline over a 12 month period an incentive program
participant should be able to earn between 1% and 5% of their gross salary
for sufficient motivation.
The above is based on industry guidelines. However, each incentive or recognition
program is built based on your unique business objectives, challenges,
opportunities, and budget.
8. Define Participant earning opportunities, such as:
- Individual employee recognition; with weekly, monthly, or quarterly
performance measurements
- Group or Team recognition; Same frequency as above
- Managers Spot award; Instant feedback plus a reward for being caught doing
the right thing.
9. A few final thoughts...
Without an effective employee incentive program, you will never fully
optimize your employees potential and your companys potential.

The most successful employee incentive programs are the result of an

ongoing process. For the best long term performance increases, plan to
periodically adjust and improve your program.



If youre looking for a way to implement a cost-effective incentive program
that will also help improve your bottom line, please contact us today using
this form.

Note: If you run your own incentive program, and would simply like
discountedmerchandise fulfillments, please contact us for details.
also see: Employee Recognition awards

See this article describing two different points-based incentive programs

Select-your-Gift offers: Points-Based Incentive Programs. ( more about
Point-based Programs )

Wants some really amazing results from an incentive program? Start a

properly designedEmployee Suggestion Program. See this
important article.


An employee stock ownership plan (ESOP) is a type of tax-qualified employee

benefit plan in which most or all of the assets are invested in stock of the employer.
Like profit sharing and 401(k) plans, which are governed by many of the same laws,
an ESOP generally must include at least all full-time employees meeting certain age
and service requirements. Employees do not actually buy shares in an ESOP. Instead,
the company contributes its own shares to the plan, contributes cash to buy its own
stock (often from an existing owner), or, most commonly, has the plan borrow money
to buy stock, with the company repaying the loan. All of these uses have significant



tax benefits for the company, the employees, and the sellers. Employees gradually vest
in their accounts and receive their benefits when they leave the company (although
there may be distributions prior to that). Close to 12 million employees in over 11,000
companies, mostly closely held, participate in ESOPs.

A stock option plan

grants employees the right to buy company stock at a specified price during a
specified period once the option has vested. So if an employee gets an option on 100
shares at $10 and the stock price goes up to $20, the employee can "exercise" the
option and buy those 100 shares at $10 each, sell them on the market for $20 each, and
pocket the difference. But if the stock price never rises above the option price, the
employee will simply not exercise the option. Stock options can be given to as few or
as few employees as you wish. About nine million employees in thousands of
companies, both public and private, presently hold stock options.

Other forms of individual equity plans:

Restricted stock gives employees the right to acquire shares, by gift or purchase at a
fair value of discounted value. They can only take possession of the shares, however,
once certain restrictions, usually a vesting requirement, are met. Phantom stock pays a
future cash or share bonus equal to the value of a certain number of shares. When
phantom stock awards are settled in the form of stock, they are called restricted stock
units. Stock appreciation rights provide the right to the increase in the value of a
designated number of shares, usually paid in cash, but occasionally settled in shares
(this is called a "stock-settled SAR"). Stock awards are direct grants of shares to
employees. In some cases, these shares are granted only if certain performance
conditions (corporate, group, or individual) are met. These awards are usually called
performance shares.

An employee stock purchase plan (ESPP)

is a little like a stock option plan. It gives employees the chance to buy stock, usually
through payroll deductions over a 3- to 27-month "offering period." The price is



usually discounted up to 15% from the market price. Frequently, employees can
choose to buy stock at a discount from the lower of the price either at the beginning or
the end of the ESPP offering period, which can increase the discount still further. As
with a stock option, after acquiring the stock the employee can sell it for a quick profit
or hold onto it for awhile. Unlike stock options, the discounted price built into most
ESPPs means that employees can profit even if the stock price has gone down since
the grant date. Companies usually set up ESPPs as tax-qualified "Section 423" plans,
which means that almost all full-time employees with 2 years or more of service must
be allowed to participate (although in practice, many choose not to). Many millions of
employees, almost always in public companies, are in ESPPs.

A Section 401(k) plan

is a retirement plan that, unlike an ESOP, is designed to provide the employee with a
diversified portfolio of investments. Like an ESOP, however, a 401(k) plan is a taxqualified plan that generally must include all full-time employees meeting age and
service requirements. The employees can choose among several or more choices for
investments, and the company may make a matching contribution. Perhaps several
million employees in a few thousand companies participate in plans with a heavy
company stock component; company stock may be an investment choice for the
employees and/or the means by which the company makes matching contributions.
401(k) plans may be combined with ESOPs (these are called "KSOPs"), where the
company match is an ESOP contribution.

Private (Closely Held) Companies


Companies that plan to go public or be acquired (high-tech startups,

etc.): Despite all the stock market and accounting rule changes that have occurred over
the last decade, options are still the currency of choice when it comes to attracting and
retaining good employees; many high-tech workers won't take a job without options.
As the company is going public, it is common to put a stock purchase plan in place as



well. There is growing interest, however, in stock appreciation rights and restricted
stock as well.

Closely held companies with owners looking to sell some or all of their
stock: An ESOP is usually the best choice. In most cases, the ESOP will borrow
money to buy out the shares, but the company may just put in cash for several years in
a gradual sale. Companies can use pre-tax dollars to buy an owner outthere is no
other way to do this than an ESOP. If the company is a C corporation (rather than S),
the owner, if certain conditions are met, will be able to avoid paying any taxes on the
sale proceeds provided they are rolled over into stocks and bonds of U.S. operating
companies. Stock options would not work at all.


Traditional closely held companies that will stay private but do not have a
selling owner: If your company is not going to experience a liquidity event (going
public or being acquired), then you have multiple choices. An ESOP provides by far
the most tax benefits to employees and the company, but it requires that allocations of
stock be made based on relative compensation or a more level formula, subject to
vesting and service requirements to enter the plan. Stock appreciation rights or
phantom stock are usually the best choice if you want to provide rewards to employees
based on merit or some other discretionary basis. With stock options or a stock
purchase plan, your company would have to create a market for the stock, which could
create costly and cumbersome securities law issues. Options or purchase plans are thus
generally used only as management compensation in such companies.

Public Companies
In some ways, public companies have more flexibility when choosing a stock plan, since
(1) there is a market for the stock, thus meaning the company doesn't have to buy it back
from employees; (2) there are no securities issues since the stock is already registered,
and (3) they typically have larger budgets than private companies, some of which, for
example, balk at paying the hefty sums associated with setting up an ESOP. Thus, the
selection process has less to do with eliminating the plans that simply won't work well



and more to do with weighing their pluses and minuses.
Stock options restricted stock, stock appreciation rights, and phantom stock (and to a
lesser extent stock purchase plans) are especially useful when you are hiring the kinds of
employees who expect them as a condition of employment. And having employees buy
stock through options and purchase plans can be a source of revenue for the company.
However, don't forget ESOPs; as a long-term, tax-advantaged plan, the ESOP can help
both a company and its employees develop a true ownership culture.
Using a 401(k) plan for employer stock in a public company is more controversial. In the
wake of accounting scandals at Enron and other companies, dozens of lawsuits were filed
against employers and plan fiduciaries for not removing employer stock as an investment
option in a 401(k) plan and/or continuing to contribute company stock as a match. The
same process started all over in the wake of the stock market crash of 2008 and 2009.
Employees started to move more assets out of employer stock (down from 19% at the
start of the decade to about 10% at the end), and companies became more wary about
overloading company stock in the plans. For more companies, this course is the prudent
In many cases, you will want to have at least two kinds of plans: for example a broadbased stock option plan plus an ESOP, or an executive option plan plus a broad-based
Section 423 purchase plan, etc. What you do will depend on the desires and needs of your
company and your employees.



Every company needs a strategic reward system for employees that addresses these four
areas: compensation, benefits, recognition and appreciation. The problem with reward
systems in many businesses today is twofold: They're missing one or more of these
elements (usually recognition and/or appreciation), and the elements that are addressed
aren't properly aligned with the company's other corporate strategies.
A winning system should recognize and reward two types of employee activityperformance and behavior. Performance is the easiest to address because of the direct link
between the initial goals you set for your employees and the final outcomes that result.
For example, you could implement an incentive plan or recognize your top salespeople
for attaining periodic goals.



Rewarding specific behaviors that made a difference to your company is more
challenging than rewarding performance, but you can overcome that obstacle by asking,
"What am I compensating my employees for?" and "What are the behaviors I want to
reward?" For example, are you compensating employees for coming in as early as
possible and staying late, or for coming up with new ideas on how to complete their work
more efficiently and effectively? In other words, are you compensating someone for
innovation or for the amount of time they're sitting at a desk? There's obviously a big
difference between the two.
The first step, of course, is to identify the behaviors that are important to your company.
Those activities might include enhancing customer relationships, fine-tuning critical
processes or helping employees expand their managerial skills.
When business owners think of reward systems, they typically put compensation at the
top of the list. There's nothing wrong with that, since few people are willing or able to
work for free. But the right strategy should also include an incentive compensation plan
that's directly linked to the goals of your company for that period. You might want to
include some type of longer-term rewards for key individuals in your organization.
Historically, this has often included some form of equity ownership.
Benefits are another type of reward in a strategic reward system, and your employees are
definitely going to notice the types of benefits you provide. Companies that don't match
or exceed the benefit levels of their competitors will have difficulty attracting and
retaining top workers. This is one reason an increasing number of businesses are turning
to professional employer organizations like Administaff to gain access to a broader array
of company benefits.
However, you can't diminish the importance of recognition and appreciation as integral
components of a winning strategic reward system. These two elements rarely receive the
attention they deserve from business owners, which is amazing because they're the low-



cost/high-return ingredients. Employees like to know whether they're doing good, bad or
average, so it's important that you tell them.
Recognition means acknowledging someone before their peers for specific
accomplishments achieved, actions taken or attitudes exemplified through their behavior.
Appreciation, meanwhile, centers on expressing gratitude to someone for his or her
actions. Showing appreciation to your employees by acknowledging excellent
performance and the kind of behavior you want to encourage is best done through simple
expressions and statements. For example, you might send a personal note or stop by the
employee's desk to convey your appreciation. Another approach is to combine
recognition and appreciation in the form of a public statement of thanks in front of the
employee's co-workers or team, citing specific examples of what they've done that has
positively impacted the organization.
Now that you know what it should include, it's time to review your strategic reward
system. Does it address compensation, benefits, recognition and appreciation? Is it
aligned with your remaining business strategies? Is it driving the right behaviors for your
company, as well as your performance goals? If it needs fixing, don't wait. It can mean
the difference between your business' success and failure.






Recognition is a transformative force for good in helping businesses reach strategic
objectives. Recognition, done right, allows people to express authentically how they feel
about their peers and the contributions they make. Vendors and practitioners must now
learn to reinvent themselves and the way recognition will look and is managed in order to
lead out into the future. These top 10 trends are thoughtful insights for taking us into an
exciting new year in 2013.
1. Expect a flood of immediate mobile recognition.
As recognition apps increase well see recognition becoming more prolific as employees
gain greater access to mobile devices like smartphones and tablets and use them to
acknowledge and praise peers near and far.
2. Social recognition supplants reward platforms.
The use of social media type recognition given via la Facebook-like platforms is
expected to race ahead of using traditional recognition portal programs which have a
strong rewards component embedded in them.
3. No excuses more people will get recognition right.
Educating on the why and how of meaningful recognition giving will come alive through
mobile access for learning via online courses, written content and video modules to
develop employees at all levels.
4. Recognition will become even more interactive.
Face-to-face video capture and the spoken word will likely be explored as the next
medium for sending personal messages of praise and acknowledgement besides the tried
and true written and graphic formats.
5. A little more personal, please.



Personalization of recognition will be front and center as a strategy for giving more
meaningful appreciation in the workplace. Employers will capture recognition
preferences with onboarding new employees and expect more manager interaction to do
the same.
6. Give me the cards I want.
Employees will no longer be satisfied with mainstay gift cards from big box stores and
established suppliers. Employees will demand to receive customized cards from
meaningful places they prefer and not just what the employer deems everyone should get.
7. Greater transparency with greening of recognition.
Employees have little trust for corporations claims of supposed eco-friendly practices
with gifts and packaging. Best to provide simple and clear proof of green efforts and
keep educating everyone regularly on what you are doing.
8. Employers want better linkage of recognition to results.
Technology enables improved tracking and recording, not just of recognition actions, but
also results achieved. Visualize leader boards online with movement tracked of progress
on strategic initiatives along with recognition given.
9. Need for better data not just big data.
Good data is useful recognition metrics for greater employee insight and employer
decision making to enhance employee loyalty and engagement. Imagine data with
personalized information promoting preferred rewards that will help increase point
redemption from programs.

10. Putting recognition into employees hands.



Its happening already with demand for increased peer-to-peer recognition tools. By
giving more recognition power to employees you remove the barriers of management and
their myths that have inhibited recognition giving for too many years.




Incentive plans are part of an employee's compensation or pay. The incentive plan gives
an employee the opportunity to increase his annual pay based upon either company
performance or individual performance. Incentive plans are a way for companies to keep
employees motivated to perform to the best of their abilities, thus increasing company
This toolkit focuses specifically on developing Employee Incentives Plans (EIPs) for
individuals or groups of individuals who are working on a specific engineering and/or
construction project. It does not address annual bonus plans or other similar performance
incentives; rather, its application is limited to developing an employee incentive plan for
a one-time project of defined scope and duration.
Incentive plans were created for the express purpose of urging employees to motivate
themselves to higher achievement levels. Incentive plans that reward employees for
reaching pre-established goals provide encouragement and give staffers something to aim
for. The advantage to the employer is increased levels of productivity.
Employees who have the ability to positively impact their earning potential through
incentive plans are more likely to be loyal to the company they represent. This is
especially true if incentive plans have residual value. For example, if an insurance
company employee gets a bonus for signing up a new client, and then gets a residual
bonus for every subsequent year that client renews, earnings can increase over the life of
his employment. It becomes an advantage to the employee and employer for there to be
longevity in the professional relationship.




Ways to Screw Up Employee Incentives BY JEFF HADEN
Successful Employee Incentive Schemes- B.J Gudsuame

Leadership & Organization Development Journa s.j . shaikh & R ramannath




1. In which kind of company you work
2. What is your job specification
Class A
class B





3. What is your paying scale




30000 above

4. What is your appointment specification



5. What is your companies incentive policey

Target based
time based


6. Have you get any incentive for last financial year

I can`t say
7. If yes , which kind of incentive



8. Are you satisfy with your companies incentive police.



I can`t say

you for